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Saturday, May 27, 2017

As you are aware
thanks to the news and social media frenzy in the past week, the government of
India has declared that the new GST rules will come into effect from 1st
of July onwards. In the previous article we had covered the basic questions you might have had about the GST bill. I had mentioned that the detailed impact of the
GST bill on the Indian Economy would be covered in a separate article. So, here
we are…

A Quick summary
of the GST Bill:

The GST Council
has finalised a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower
rates for essential items and the highest for luxury and de-merits goods,
including luxury cars, SUVs and tobacco products, that would also attract an
additional cess. Moreover, with a view to keeping inflation under check,
essential items including food, which presently constitute roughly half of the
consumer inflation basket, will be taxed at zero rate. The cess is expected to
provide additional resources to the central government to compensate states for
losses incurred. This will be based on the compensation formula.

Why the GST Bill
may be Good News for India?

The introduction of Goods and Services Tax is step in the right
direction in the field of indirect tax reforms in India. If there was one major
complaint (Apart from corruption of course) from businesses that wanted to
establish themselves in India (both local & foreign) was the complex tax
structures and the multitude of state/central taxes that had to be paid by
businesses. Without much clarity, these businesses were at the mercy of their
auditors plus were always under the scanner of the tax man and could be
penalized for tax non-compliance.

By amalgamating a large number of Central and State taxes into a single
tax, it would alleviate cascading or double taxation in a major way and pave
the way for a common national market. From the consumer point of view, the
biggest advantage would be in terms of reduction in the overall tax burden on
goods and services. Introduction of GST would also make Indian products
competitive in the domestic and international markets. Last but not the least,
this tax, because of its transparent character, would be easier to administer.
However, once implemented, the system holds great promise in terms of
sustaining growth for the Indian economy.

Impact of GST on Indian Economy

Below are some of the holistic benefits that can be expected because of
the GST Bill.

Increased FDI

The flow of Foreign Direct Investments may increase once GST is
implemented as the present complicated/ multiple tax laws are one of the
reasons foreign Companies are wary of coming to India in addition to widespread
corruption.

Growth in overall revenue

It is estimated that India could get revenue of $15 billion per annum by
implementing the Goods and Services Tax as it would promote exports, raise
employment and boost growth. Over a period, the dilution of the principles may
see that only part of this is accruing.

Single Point Taxation

Uniformity in tax laws will lead to single point taxation for supply of
goods or services all over India. This increases the tax compliance and more
assesses will come into tax net.

Simplified Tax Laws

This reduces litigation and waste of time of the judiciary and the assesse
due to frivolous proceedings at various levels of adjudication and appellate
authorities. Present law appears to be much worse and an amalgam of the bad
parts of VAT/ ST/ CE.

Increase in Exports and Employment

GST could also result in increased employment, promotion of exports and
consequently a significant boost to overall economic growth and factors of production
-land labour and capital.

Other Benefits of GST:

Reduced tax burden on producers and fosters growth through more production. The existing double taxation system prevents manufacturers from producing to their optimum
capacity and restricts growth. GST would take care of this problem by
providing tax credit to the manufacturer.

Various
tax barriers such as check posts and toll plazas lead to a lot of wastage
for perishable items being transported, a loss that translates into major
costs through higher need of buffer stocks and warehousing costs as well.
A single taxation system could eliminate this roadblock.

This single taxation on producers and reduced wastage/inventory losses would also translate into a lower final
selling price for the consumer.

Customers would know
exactly how much taxes they are being charged and on what base (Because numerous taxes have been eliminated and the system is transparent now)

GST
provides credits for the taxes paid by producers earlier in the goods/services supply chain. This would encourage these producers to buy raw material from
different registered dealers and would bring in more and more vendors and
suppliers under the purview of taxation.

GST
also removes the custom duties applicable on exports. Our competitiveness
in foreign markets would increase on account of lower cost of transaction.

The
proposed GST regime, which will subsume most central and state-level
taxes, is expected to have a single unified list of concessions/exemptions
as against the current mammoth exemptions and concessions available across
goods and services

All this sounds
promising isn’t it? What are your thoughts on the GST Bill? Do sound off in the
comments section.

Also, there will
be subsequent articles published in the coming days elaborating the sector wise
impact of the GST Bill. Hope you find them useful.

Friday, May 26, 2017

The last
few days have been quite turbulent for the social media ever since the
government declared its intention that the GST Bill is finally set to become a
reality. You may ask me what doesn’t trigger a social media frenzy in India
these days. Anyways, coming back to the topic, there are a lot of news posts
being shared on social media about GST being good or bad (depending on whether the
person sharing the news is pro or anti BJP). The common man as always is lost
for clarity on what is happening around him. So, I wanted to help clarify
things for my blog readers.

Let me
start off by apologizing for the delay. I should’ve written about it a week
back but have been quick busy with work related commitments and couldn’t get to
writing this article until today. The article is structured in a Q & A
format to help answer your questions better. If you have any unanswered
question after this article, pls feel free to comment.

Note: This
is not a politically motivated article. So, pls refrain from posting comments
that are political or abusive in nature or using derogatory language. Thank
you.

1. What is this new GST Bill?

The Indian
taxation system is extremely complicated (Trust me – If you thought that the individual
income taxation slabs & rules were complex, wait until you get into the
shoes of a businessman) with numerous different types of taxes being payable to
different entities like State government, Central government, Customs etc.

This new
GST Bill is aimed at reducing this complexity and make the lives of businessmen
especially the Small & Mid sized enterprises or SME’s easier and their tax
liabilities clearer. The new GST Slabs will replace a whole bunch of different
taxes that exist.

2. What are
these taxes that GST Replaces?

The GST
replaces numerous different indirect taxes that are prevailing in India such
as:

Central Excise Duty

Service Tax

Countervailing Duty

Special Countervailing Duty

Value Added Tax (VAT)

Central Sales Tax (CST)

Octroi

Entertainment Tax

Entry Tax

Purchase Tax

Luxury Tax

Advertisement taxes

Taxes applicable on lotteries.

3. What are
the GST Tax Slabs?

The Goods and Services Tax (GST) will be
levied at multiple rates ranging from 0 per cent to 28 per cent. GST Council
finalised a four-tier GST tax structure of 5%, 12%, 18% and 28%, with lower
rates for essential items and the highest for luxury and de-merits goods that
would also attract an additional cess.

10. What are the things expected to be
costlier or cheaper post implementation of GST?

According
to experts, these items could become costlier:

·Cigarette
prices likely to go up as GST rate for tobacco will be higher than current
duties

·Commercial
vehicles such as trucks will become costlier

·Mobile
phone calls may get costlier as service tax will go up

·Textile
and branded jewelry may become costlier

And these
could become cheaper:

·Auto:
Prices of entry-level cars, two-wheelers, SUVs may fall

·Car
batteries likely to get cheaper

·Paint,
cement prices likely to fall

·Movie
ticket prices likely to fall as entertainment tax will come down

·Electronics
items like fans, lighting, water heaters, air coolers, etc. will get cheaper

11. What will be the impact of this GST
implementation?

To start off, that will probably be a
separate article in itself and a lengthy one too. So, am just going to give you
a quick overview of what to expect in the short term.

In the short term it will probably fuel
inflation because many of the commonly used items come in the 5-18% GST slabs
and will pinch our pockets a bit. One surprising aspect of this GST is the fact
that liquor hasn’t been included in the GST purview while tobacco has been included
in the highest tax slab. I agree with the idea of excluding Petroleum as adding
a GST on petroleum will add tremendous stress to our already strained economy but
leaving out liquor does not seem to be a good idea. If tobacco is being charged
at the highest slab in GST so should liquor (PS: This is just my opinion).

In the long run, since the GST will be applied at every step of value
creation it will be very difficult for black money owners to participate
anywhere in the value chain with the GST without accounting for all other
transactions. The GST is estimated to provide an immediate boost of 0.9% – 1.4%
of the GDP.

12. Can you show how this new GST will help a
businessman?

Of course I can.

Mr. Kumar is a businessman who wants to start a business in Chennai. For
this he needs various raw materials which have to be imported from China and
will need to be brought to Avadi where he has his factory by road through
various states. Once he gets down on the process of estimating his costs &
taxes he is a little troubled.

First, he needs to pay a customs duty for importing the materials on top
of the shipping charges. This is fine but there are a lot of other taxes which
he seems to be unable to comprehend. See answer to question 2 to understand
what those taxes are. The list itself is long and imagine Mr Kumar’s
predicament in understanding all those and calculating his tax liability under
each category. I am not even going to attempt to calculate Mr. Kumars tax
liability and overcomplicate things because frankly I don’t understand them
either…

Now, let us assume that the GST is set at 18%. Suppose that the
manufacturing cost of a Product A is 100 and assuming a GST of 18% the total
amount is Rs. 118. The next step of taxation would be when the Product is sold
to consumers, let’s say at a price of 150. So the GST will charge another 18%
on just the difference of Rs. 150 and Rs. 118 i.e. only 18% on Rs. 32 which is
equal to Rs. 5.76. So the final price is Rs. 150 + Rs. 5.76 which makes Mr.
Kumar’s as well as his Tax Auditors life easier doesn’t it? Not to mention the
tax man who is happy to receive the Rs. 18 & Rs. 5.76 GST respectively.

What are your thoughts on this GST? Pls share them in the comments
section in a civil manner. Thank you.

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